Is Refinancing Worth the Cost?
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It has been said that only when your new interest is at least two points under your current rate, should you refinance your loan. Maybe that was good advice several years ago, but as refinance costs have been getting lower, it could be a good time to take a serious look. A refinanced mortgage loan is often worth its cost many times over, factoring in the benefits that may come, along with a reduced interest rate.
You might be able to lower your interest rate (sometimes by a lot) and make smaller monthly payments with a refinanced loan. Additionally, you may have the option of pulling out some of your home equity by "cashing out" a sum of money to remodel your home, consolidate debt, or take your family on a vacation. With lower interest rates, you may also get the chance to build your home equity more quickly by switching to a shorter-term mortgage loan.
Of course, you will have to pay for your the refinance process. When you refinance, you're paying for many of the same things you paid for during your original mortgage loan. Among these may be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
Do the Math
You could offer to pay discount points (prepaid interest) to get a lower rate of interest. If you pay (on average) 3% of the loan amount at the start, the savings for the life of the new loan can be great. You may be told that these points may be deducted on your income taxes, but as tax regulations can be ever-changing, we urge you to consult your tax professional before considering this in your calculations.
Another thing about taxes is that if your interest rate is reduced, of course you will also be lowering the paid interest amount that you will be able to deduct from your federal income taxes. This is one more expense that borrowers consider. Call us at 701.222.0100 to help you do the math.
In the end, for most people the amount of initial costs to refinance are made up very quickly in monthly savings. We can help you explore what your options are, considering the effect a refinance could have on your taxes, how likely you may be to sell in the next couple of years, and your available cash. Call us at 701.222.0100 to get started.
Want to know more about refinancing? Give us a call: 701.222.0100.